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Yahoo
an hour ago
- Business
- Yahoo
New World's distress worsens after shock delay on bond interest
New World, which is grappling with HK$210.9 billion of liabilities, said in a filing late Friday that it's planning the deferment for coupons on four perpetual notes. Hong Kong developer New World Development is sliding deeper into distress after jolting investors by delaying interest payments on some bonds, marking the latest flashpoint in a years-long crisis in China's property market. New World, which is grappling with HK$210.9 billion ($34.67 billion) of liabilities, said in a filing late Friday that it's planning the deferment for coupons on four perpetual notes. In total, that means it's postponing US$77.2 million of debt obligations, according to Bloomberg calculations. The bonds concerned slid to record lows. Its 6.15% perpetual notes dropped about 3 US cents to 23 US cents on the dollar after tumbling more than 30 US cents on Friday, on pace for its lowest level since issuance. Its 4.8% perpetual securities fell 10 US cents to 15.5 US cents, also on track for a record low and the biggest daily decline since October 2022. Its shares slid as much as 11%, the biggest intra-day drop in about two months. 'While this will not trigger a default, the total amount to be repaid will pile up so the headwind should remain in the long run,' said Jeff Zhang, an analyst at Morningstar. A company spokesperson said Friday that the company was continuing 'to manage its overall financial indebtedness whilst taking into account the current market volatility and continues to comply with its existing financial obligations'. While the market moves on Monday underscore how investor unease is worsening, there have also been some more positive developments for the builder, which is controlled by the family empire of tycoon Henry Cheng. Bloomberg reported earlier Monday morning that as of May 30 the company had received written commitments from banks for 60% of HK$87.5 billion of loan refinancing that it's seeking by the end of June, according to people familiar with the matter. New World didn't immediately respond to a request for comment Monday morning. The company also said Friday that total contracted sales year-to-date amount to about HK$24.8 billion, representing over 95% of the annual sales target, according to its monthly business update. But markets clearly need more certainty on debt repayment plans after a years-long property slump in the city and mainland China has left New World with one of the highest debt burdens of any Hong Kong developer. Investors have also become increasingly sceptical after New World reported its first loss in 20 years for the financial year ended last June. The company's stock is trading at a price-to-book ratio of just 0.06x, with a market capitalisation of US$1.4 billion versus about US$17 billion at its peak in 2019. See Also: Click here to stay updated with the Latest Business & Investment News in Singapore New World Development defers perpetual bond coupon payments Hong Kong bankers sweat US$11 billion New World refinancing New World Development's billionaire Cheng family in talks with Louis Vuitton on mega Hong Kong store Read more stories about where the money flows, and analysis of the biggest market stories from Singapore and around the World Get in-depth insights from our expert contributors, and dive into financial and economic trends Follow the market issue situation with our daily updates Or want more Lifestyle and Passion stories? Click here
Business Times
3 days ago
- Business
- Business Times
New World's distress worsens after shock delay on bond interest
[HONG KONG] Hong Kong developer New World Development is sliding deeper into distress after jolting investors by delaying interest payments on some bonds, marking the latest flashpoint in a years-long crisis in China's property market. New World, which is grappling with HK$210.9 billion (S$272 billion) of liabilities, said in a filing late on Friday (May 30) that it's planning the deferment for coupons on four perpetual notes. In total, that means it's postponing US$77.2 million of debt obligations, according to Bloomberg calculations. The bonds concerned slid to record lows. Its 6.15 per cent perpetual notes dropped about 3 US cents to 23 US cents on the US dollar after tumbling more than 30 US cents on Friday, on pace for its lowest level since issuance. Its 4.8 per cent perpetual securities fell 10 US cents to 15.5 US cents, also on track for a record low and the biggest daily decline since October 2022. Its shares slid as much as 11 per cent, the biggest intraday drop in about two months. 'While this will not trigger a default, the total amount to be repaid will pile up so the headwind should remain in the long run,' said Jeff Zhang, an analyst at Morningstar. A company spokesperson said on Friday that the company was continuing 'to manage its overall financial indebtedness whilst taking into account the current market volatility and continues to comply with its existing financial obligations'. While the market moves on Monday underscore how investor unease is worsening, there have also been some more positive developments for the builder, which is controlled by the family empire of tycoon Henry Cheng. A NEWSLETTER FOR YOU Tuesday, 12 pm Property Insights Get an exclusive analysis of real estate and property news in Singapore and beyond. Sign Up Sign Up Bloomberg reported earlier Monday morning that as at May 30, the company had received written commitments from banks for 60 per cent of HK$87.5 billion of loan refinancing that it's seeking by the end of June, according to sources familiar with the matter. New World did not immediately respond to a request for comment on Monday morning. The company also said on Friday that total contracted sales year-to-date amount to about HK$24.8 billion, representing over 95 per cent of the annual sales target, according to its monthly business update. But markets clearly need more certainty on debt repayment plans after a years-long property slump in the city and mainland China has left New World with one of the highest debt burdens of any Hong Kong developer. Investors have also become increasingly sceptical after New World reported its first loss in 20 years for the financial year that ended last June. The company's stock is trading at a price-to-book ratio of just 0.06, with a market capitalisation of US$1.4 billion versus about US$17 billion at its peak in 2019. BLOOMBERG
Straits Times
3 days ago
- Business
- Straits Times
HK property giant New World's distress worsens after shock delay on bond interest
A years-long property slump has left New World with one of the highest debt burdens of any Hong Kong developer. PHOTO: ST FILE – Hong Kong developer New World Development is sliding deeper into distress after jolting investors by delaying interest payments on some bonds, marking the latest flashpoint in a years-long crisis in China's property market. New World, which is grappling with HK$210.9 billion (S$34.7 billion) of liabilities, said in a filing late on May 30 that it is planning the deferment for coupons on four perpetual notes. In total, that means it is postponing US$77.2 million (S$99.6 million) of debt obligations, according to Bloomberg calculations. The bonds concerned slid to record lows. Its 6.15 per cent perpetual notes dropped about three cents to 23 cents on the dollar on June 2 after tumbling more than 30 cents on May 30, on pace for its lowest level since issuance. Its 4.8 per cent perpetual securities fell 10 cents to 15.5 cents, also on track for a record low and the biggest daily decline since October 2022. New World shares slid as much as 11 per cent, the biggest intraday drop in about two months. 'While this will not trigger a default, the total amount to be repaid will pile up, so the headwind should remain in the long run,' said Morningstar analyst Jeff Zhang. A company spokesperson said on May 30 that the company was continuing 'to manage its overall financial indebtedness while taking into account the current market volatility, and continues to comply with its existing financial obligations'. While the market moves on June 2 underscore how investor unease is worsening, there have also been some more positive developments for the builder, which is controlled by the family empire of tycoon Henry Cheng. Bloomberg reported earlier on June 2 that as at May 30, the company had received written commitments from banks for 60 per cent of HK$87.5 billion of loan refinancing that it is seeking by the end of June, according to people familiar with the matter. The company also said on May 30 that total contracted sales year to date amount to about HK$24.8 billion, representing over 95 per cent of the annual sales target, according to its monthly business update. But markets clearly need more certainty on debt repayment plans after a years-long property slump in the city and mainland China has left New World with one of the highest debt burdens of any Hong Kong developer. Investors have also become increasingly sceptical after New World reported its first loss in 20 years for the financial year ended last June. The company's stock is trading at a price-to-book ratio of just 0.06, with a market capitalisation of US$1.4 billion versus about US$17 billion at its peak in 2019. BLOOMBERG Join ST's Telegram channel and get the latest breaking news delivered to you.
Mint
3 days ago
- Business
- Mint
New World's Bond Coupon Delay Raises Three Questions
(Bloomberg Opinion) -- In the bond world, not calling a perpetual is bad. But not repaying coupon? That's way worse. Hong Kong-based New World Development Co.'s decision to defer interest payments on four perpetual notes took investors by surprise. While this is by no means an action of default — a perpetual resembles an equity when business conditions get tough — it's nonetheless a highly unconventional move. As such, the real estate developer, controlled by the family empire of tycoon Henry Cheng, must clarify the confusion it has created among investors and bankers. There are three main questions worth asking. First, why is New World deferring its coupon payments now? It's negotiating with banks HK$87.5 billion ($11.2 billion) of refinancing in the hope of completing a deal by the end of June. As of Friday, lenders had committed more than HK$35 billion, or about 40% of the total. It's worth noting that this deferral could save the developer only about HK1.8 billion annually. By all means, not paying perpetual coupons is a credit-negative event, especially in the eye of Chinese banks, which might be stepping in to replace foreign lenders if the latter cut their credit lines. On the mainland, most perpetuals are issued by creditworthy state-owned companies, such as big banks and industrials, which habitually redeem at the first reset date and repay all interest. So why is New World rocking the boat when it should put on a performance and behave like a pristine investment-grade borrower instead? This brings us to the second question: How tight is New World's liquidity position? Companies with decent cash flow might want to keep paying coupons until the mega loan deal is sealed first. Up to the company's surprise announcement, investors could have been forgiven for thinking that the developer was troubled but not distressed. After all, New World has got some strong tailwinds. A recent plunge in Hong Kong's benchmark borrowing rate is boosting demand for home purchases. Last week, a luxury residential project in the city's southern district, which New World owns 50% of, pulled in more than HK$1 billion. For the fiscal year ending June, Bloomberg Intelligence expects the company to beat its Hong Kong sales target of HK$11 billion by 10%. Business is picking up in mainland China as well. The developer has raised its sales target by 27% to 14 billion yuan ($2 billion). Going forward, investors will be skeptical of New World's liquidity position. As of 2024 year-end, it had HK$21 billion in cash. But the company does not disclose what percentage is being held in mainland China, which has various capital controls. In other words, money onshore may not be easily transferred to Hong Kong for debt repayments. In addition, is that seemingly large cash pile from five months ago still unrestricted? Third, will there be any spillover? The Cheng family is probably trying hard to ring fence and ensure New World's woes don't affect other parts of its business empire, such as Chow Tai Fook Jewellery Group Ltd., or toll roads operator CTF Services Ltd. But for the rest of us, the more pertinent question is whether Hong Kong's reputation as a creditworthy community is still intact. Unlike mainland Chinese companies that don't have a long track record and thus have to swallow stringent lending conditions, the city's blue-chip names have for decades enjoyed lenient and cozy relationships with creditors. Unfortunately, New World's surprise coupon deferral is eroding that mutual trust and raising some very uncomfortable questions. More From Bloomberg Opinion: This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron's. She is a CFA charterholder. More stories like this are available on
Straits Times
7 days ago
- Business
- Straits Times
Bankers on edge over $14 billion loan refinancing deal for embattled HK property giant New World
New World is controlled by the family of Henry Cheng, an avid player of a Chinese poker game called Big Two, whose fortune is estimated at US$22.9 billion (S$29.5 billion). PHOTO: NEW WORLD HONG KONG – Hong Kong bankers have become fixated on a HK$87.5 billion ($14.4 billion) loan deal with unusually high stakes for the financial hub. New World Development, an embattled property developer controlled by one of Hong Kong's richest families, is aiming to complete one of city's largest-ever corporate refinancing deals with more than 50 banks by the end of June after pushing back an initial deadline for this month. So far, at least 12 banks have agreed to terms while the rest - including Singapore lenders - are still talking, according to people familiar with the matter. Failure to reach a deal could lead to demands for immediate repayment. The repercussions would threaten both New World and many of the banks which are already suffering from a sharp rise in non-performing loans from commercial real estate. The stakes are so high that in many cases, the banks' chief risk officers have stepped in, people familiar with the matter said. Even chief executive officers of banks are closely monitoring the situation with frequent updates, the people added, asking not to be identified as the matter is private. 'A New World Development failure wouldn't break the system, but that destabilisation could be contagious,' said Brock Silvers, managing director at private equity firm Kaiyuan Capital. 'A 'delay & pray' strategy would buy time while doing little to alleviate underlying risk to the company or Hong Kong's broader financial system.' New World aims to secure HK$87.5 billion in refinancing. It has commitments exceeding HK$20 billion from Bank of China, HSBC Holdings and Standard Chartered, local lenders Bank of East Asia, Fubon Bank (Hong Kong), Hang Seng Bank, and French lender Credit Industriel et Commercial along with several other financial institutions. The other banks are in the process of securing internal credit approvals. A deal of this magnitude can take time as credit committees scrutinise every detail, raising numerous questions to evaluate the risks involved. Some banks are waiting for lenders with greater exposure to sign on before they can secure their own internal approvals, said the people. A couple of other top Chinese, Japanese and Singapore banks are in the final stages of approving the loan, according to other people familiar with the matter. 'If one or two lenders in the syndicate are unwilling to commit, will the others in the syndicate be willing to take up the rest of the refinancing? If yes, the impact to the banking sector would be limited,' said Cusson Leung, chief investment officer for KGI Asia. 'If a majority of the lenders in the syndicate are unwilling to commit, it is much more destabilising.' New World is controlled by the family of Henry Cheng, an avid player of a Chinese poker game called Big Two, whose fortune is estimated at US$22.9 billion (S$29.5 billion). The developer has built many of Hong Kong's landmarks over the past several decades. Its trophy properties include the commercial complex located at the core area of Tsim Sha Tsui waterfront in Kowloon district and the 11 Skies commercial complex project next to the Hong Kong International Airport. However, the developer has been mired in a two-year crisis of confidence amid mounting liquidity pressure. Home values in Hong Kong have fallen 28 per cent from an all-time high in 2021 and have been hovering at the lowest levels since 2016 in recent months. Residential property development in Hong Kong and mainland China account for about half of the company's revenue. Meanwhile, the city's office vacancy rate was near a historical high of 13.7 per cent in April, while office rents saw the 36th consecutive month of declines since May 2022, according to real estate services firm JLL. New World's net debt rose to 96 per cent of shareholders' equity as of the end of 2024, according to BI research, making it one of the most leveraged Hong Kong developers. Investors are increasingly skeptical of the firm's ability to manage the debt burden, after it reported its first loss in 20 years for the financial year ended last June. Adding to New World's woes, it changed its chief executive officer twice in two months, including the surprise sidelining of Adrian Cheng, Henry Cheng's eldest son. New World has multiple bond coupon payments due in June. The builder had total liabilities of HK$210.9 billion at the end of December 2024 and in June it has at least US$116.6 million of coupon payments due, including on four perpetual notes. The company has pledged around 40 properties as collateral, including its crown jewel, Victoria Dockside, to get refinancing. The developer spooked creditors about possible liquidity strains when it opted not to call a US$345 million 6.15 per cent perpetual bond before interest costs jump to over 10 per cent. The price of this perpetual bond has plunged 28 per cent to about 56 cents so far in May, the steepest monthly decline since January, according to data compiled by Bloomberg. 'The outcome of the loan refinancing is the near term catalyst for the bonds, as failure to refinance the bank loans now could lead to liquidity issues down the road,' said Leonard Law, a Singapore-based senior credit analyst at Lucror Analytics. The downturn in property has saddled banks with non-performing loans. The Bank of China's Hong Kong unit, Bank of East Asia, Hang Seng Bank and HSBC are among lenders with the biggest exposure to the city's commercial real estate sector. Hang Seng classified about 15.1 per cent of its HK$130.5 billion Hong Kong commercial property loans as credit-impaired at the end of last year, compared with less than 1 per cent in 2023. Still, most observers expect the banks to ultimately reach a deal with New World. About 20 per cent of Hong Kong's licensed bank loans were exposed to the property sector as of March, according to Jeff Zhang, a property analyst at Morningstar. The concentration of risk means if lenders play hardball, it could end up backfiring. Failure to reach terms would damage everyone. BLOOMBERG Join ST's Telegram channel and get the latest breaking news delivered to you.
